For anyone wondering what he actually did wrong, there are a few key points to note. Aluminum (and all materials, really) is exported and imported and duties are paid on the basis of the HS code and (if there is a trade agreement to be taken advantage of) certificates of origin (COO) along with the usual shipping docs.

China is inclined to tax exports of primary aluminum because aluminum is power intensive to produce. Thus, exporting raw aluminum ingots whose production has been state subsidized is basically akin to exporting (even giving away!) power. However, China relaxed export duties on certain 'finished' aluminum products. This opened up a loophole where Chinese companies could make 'finished aluminum products' which are classified under a different HS code than primary aluminum and ship it out of the country, duty free. In reality, this meant that they sloppily made it into whatever shape wasn't ingots or T bars rather than into any concretely useful shapes.

These 'finished' products then made their way out to places like Mexico and more recently Vietnam. Since they were still carrying Chinese COOs, they couldn't be directly re-exported to the US (or any other country without a FTA with China). They needed to be remelted/recycled into 'raw aluminum' and given a new COO (or for the less scrupulous given a fake COO...), hence the need for the Mexico factory.

So...if cost to ship to Mexico + cost to extrude and remelt < difference in Chinese VS Western manufacturing costs + duties on primary aluminum ... this is a profitable (and legal) trade!

So companies would package up "pizza topping kits" in the USA, import them to Canada as "food preparations"... and then remove the cheese, which could be sold separately for far more than the cost of the complete kit.

After a couple years, the classification rules were amended to exclude anything containing cheese from the "food preparations" tariff class.

There is a famous example where Ford imported cargo vans from Europe to the US with disposable seats in them so they would be taxed (more cheaply) as passenger vans. I think the tax in question was referred to as the "chicken tax".

The situation is a bit different but China's value-added tax scheme combined with the prevalence of factories in bonded export zones leads to a lot of useless shipping of goods (or components of goods) from China to Hong Kong (or another nearby foreign jurisdiction) and back for no good reason other than to avoid tax. I'm sure this works out great for the local freight industry...

The loophole has been closed, and Ford no longer sells the Transit Connect in the US.

And folks at the grocery store aren't going to like the prices if they want their unsubsidized groceries to be grown by their own countrymen earning middle-class wages.

Subsidies right now are certainly not where they need to be. The whole thing needs to be reformed but there are basically two classes of people: rich powerful special interests that profit from the status quo, and ignorant citizens that don't understand the very basics of why anything is being done.

Ignorance and greed underly most of our problems. Which one are you guilty of?

> "You starve poor countries by selling off all of their food to rich countries and making what's left very expensive"

The food produced in the poor country will sell for "the world price", pretty much the same everywhere. Not "cheap" in the rich countries and "expensive" in the poor ones.

I'll assume you are talking about US production. The vast majority of US crops don't need subsidies. They are heavily mechanized on cheap land (middle of Iowa etc) fairly close to markets and with good infrastructure.

>The food produced in the poor country will sell for "the world price", pretty much the same everywhere. Not "cheap" in the rich countries and "expensive" in the poor ones.

Spending power around the world varies by several orders of magnitude. If there's one "world price" for a crop, that price will be incredibly cheap for rich countries and incredibly expensive for poor ones. Agricultural poor countries will not be able to afford the food they grow.

>a lot of food eaten in rich countries is has minimal subsidies already

In the US, SNAP (food stamps) costs about $75 billion per year and is about 80% of the spending on the farm bill. It's hard to think of that as anything but a subsidy, and it covers more or less all food.

There's a lot more as well...

Significant numbers of both poor and rich countries do not subsidize food today. Many agricultural products are commodities and traded at the "world price" already. This is the world you live in right now. Have a look at what is actually happening rather than speculating...

>In the US, SNAP (food stamps) costs about $75 billion per year and is about 80% of the spending on the farm bill

Food Stamps are not a subsidy to farmers, they are a welfare program for poor people. They just are part of the "farm bill" for political reasons.

Food stamps shape the food choices people are able to (and do) make. Giving people money to buy food and giving farmers money to produce food are two sides of the same coin.

For example:

"SNAP increases the likelihood that participants will consume whole fruit by 23 percentage points"[1]

1: https://en.wikipedia.org/wiki/Supplemental_Nutrition_Assista...

This is just bad economics. If food is "incredibly cheap" for rich countries, and agricultural poor countries are unable to afford the food they grow, then the prices will rise. Humans can't survive without food.

When I'm saying "cheap" and "expensive" those are relative terms to the spending power of the population.

If I make $200 a day and some guy in Africa makes $2 a day and we both pay the same price for food. Either I get an incredible deal and pay basically nothing (compared to my income) for all of my food... or he starves to death because he can't afford it.

It has certainly happened. During the Irish Potato Famine, despite the potato disease going around, there was plenty of food to feed the population, they just sold it at a higher price elsewhere.

https://en.wikipedia.org/wiki/Great_Famine_(Ireland)#Irish_f...

In the Great Famine, exporting leads to economic gain; it's just that people were poor. If you ban exports then exporters lose money and so they'll also become more poor.

Anyways, what you're saying is moot as we already have a world price for most food.

The people actually selling the crops in foreign markets won't starve, but these people are often not the actual farmers but middle-men. What about the people who don't farm? Food prices double and they can't just double their own prices and expect to win.

There's a huge economic correction that takes a long time if you break down barriers and the result is a lot of people starving in poor countries and a lot of farms failing in rich ones.

>In the Great Famine, exporting leads to economic gain; it's just that people were poor. If you ban exports then exporters lose money and so they'll also become more poor.

Are you defending the people who found economic gain of the exporters during the famine? 1/8 of the population died. In a closed economy there was more than enough food, prices would have adjusted themselves so that everyone could have eaten. There would have been problems with buying power to import into Ireland, but a million people wouldn't have died and another million wouldn't have fled the country.

That is, I think trade should be completely unrestricted to foreign markets that are within some economic margin (let's say US, Japan, Canada, and Germany to come up with a very incomplete list) and in any other cases should be subject to significant restrictions.

I don't like the fact that it's nearly impossible to pay someone in America an honest wage to put together t-shirts or running shoes. I don't like the fact that I'd be hard-pressed to buy a t-shirt or a running shoe that wasn't assembled by a person who is more like a slave than not.

But also,

Food is something fundamental, something important, more important than almost anything else and really easy to export the production. We might be ok letting some industries be entirely foreign, because maybe they're less essential... basic sustenance though is in a different class of importance. It's not a fad, it'll never go away unlike many industries that seek protections when they should just be allowed to die.

Or, heck, you might not like it. But I think you should know more about it anyway.

Food production (amount of food) rises, while falling as a share of GDP. Agricultural productivity (food output production per unit input) shoots up. A lot of land is repurposed from sheep to other products.

And of course, subsidy spending goes way down.

> Poor countries without standards for food safety, scruples about burning down rainforest for a few years of fertility, or worker rights or fair wages.

The wages are bad but if you don't buy from poor countries their wages will be even worse.

Play a little game. Try to find the fruit, or vegatables that arn't produced in the rich country, fair wage country, safety conscious country of Mexico.

Even then, where it was produced doesn't matter much, if it wasn't grown in Mexico or shipped in from somewhere more exotic, much of the human labor was likely done by migrant workers from Mexico anyway.

Let's not pretend that the working conditions for the unmechanized portions of most produce-related jobs are anything but appalling.

To put a fine point on it, I don't want any part of my quality of life to be put on the backs of a workforce outside the middle class (or a foreign equivalent through trade)

----

The question is – is your goal replacing all food production with foreign wage-slaves? Are you holding up the current American market for "unsubsidized" produce as a shining beacon to be emulated? If you look into it, you realize far too much of it exploits the desperate and poor and creates shitty situations everywhere it goes. Proper subsidies and market regulations could mean that you could be proud to be a part of the food economy instead of feeling like a 21st century colonialist.

UBI/FB like threads are filled with comments that seemed to forgot this so obvious fact of life. Its the worst thing about HN.

Subsidizes get introduced either to score political points and/or bribes. Thats it.

It works because overproducing food costs less than the risk of market shortage transients. It's one of those Catch-22 moments where you feel in awe of the genius of it.

I am very sorry it is a significant fraction of your state budget. Given the nature of the risk profile your state should not be underwriting this risk.

I imagine their true goal is to just pad their pockets.

Medieval Japanese culture is just so achingly beautiful it does not surprise me that people have such love fr it.

Of course, a lot of that had to do with incentives....

If you only grow and eat potatoes, you can feed 7 people 2000 Calorie/day diets all year. That's the figure if you grow potatoes like big potato farmers. If you nurture the land and integrate other species taking advantage of differing growing seasons and do all you can to make perfect soil conditions, you can get a lot more out of it than potatoes every day for 7.

Norwegian farming policy is focused on maintaining near-independence in the food supply because the British embargo during the Napoleonic wars in the early 1800's is still seared in the collective consciousness. E.g. every Norwegian primary school child will go through the very long, very tedious poem "Terje Vigen" about a man who tried to evade the British embargo by taking a small boat to Denmark to get food to feed his starving family.

Starvation happened despite farming most of the available land.

The concern of local food production rose to prominence again during World War II, when German occupation meant strict rationing, which led to "fun" food innovation such as flour substitute made from bark, as growing vegetables etc. in your back garden simply doesn't produce enough for most people to sustain a family.

Don't mistake me, I'm not claiming that Norwegian farming policy is perfect, merely that it does seem to work at the moment.

But here's a summary of the end:

He is released from prison at the end of the Napoleonic wars, and comes home to find his wife and child died while he was in prison, and were buried in a paupers grave.

Years later he comes across a ship in distress and it is the captain of the British ship that caught him, with his family. He threatens revenge, but on picking up the child changes his mind and saves all of them.

[1] http://www.oftebro.com/Terje_Vigen_english.pdf

The government would need to prevent large companies from splitting up, and suddenly overnight you have 20 different small companies. They could beef up legal penalties for any blatant, repeated shinagigans. (Will never happen? The money their lobbyists sending congress is staggering?)

It's a shame how taxpayer money is wasted by administrators/politicians.

In the Bay Area, we have a lot of civil engineering jobs. (Those street repair/pipe jobs that never end, and tie up traffic for years). For years, it seemed like one company got all the work-- Billotti Brothers. (Didn't use their real name, out of fear.)

Even though every project required three bids, by three different companies, it seemed like Billotti got all the work. I used to wonder why. They must be one efficent company?

The Internet arrived, and people had some honest questions, basically, the main one was, "Is this the only company?"

I then noticed news papers started to list the construction companies that lost out on the bids. I looked into these companies. They all seemingly were founded by a Billotti? It looks like they sent their kids to Sacramento to get their contractors licenses? (Very easy to get).

These companies then all bid on projects. The lowest bid won! "Hold up a glass of red wine!"

And of course, they didn't plan this wacky coincidence, commingle assets("I don't need that grader brother."), share workers, work on eachother's projects--never.

And I actually don't have a clue to what they did, but it just doesn't look right. And it all could be legal--I just don't know? Or maybe, all the kids/grandkids just followed in dad's footsteps, and got into construction aspect of civil engineering?

(Edit: If I recall, the whole save the American farmer thing was started when I was a child. It sounded great, but farmers bought up all the small farmers, and the subsidies never stopped. Sorry about going off topic with the Billotti Brothers. I've become so dissalusioned with our society.)

If you don't provide farming subsidies, farming will move to countries with cheap labor and people with knowledge and capability for farming will become too few to ramp up quickly in case of emergency.

Unfortunately pretty much all "free trade" deals turn out to be "free trade except for a small number of politically well-connected industries". :-(

'real' communism can't exist (outside small rare communities) because the industrial revolution failed to bring about a post-scarcity economy which was marx's failure of prediction.

A post-scarcity economy which eliminates the importance of capital is probably very possible in the future. Complete hands off capitalism probably is never going to be possible.

Free market / small government doesn't work because a) it is inherently unstable due to power laws (rich get richer), b) lots of externalities (e.g. environmental damage) not being priced in, c) lower overall wellfare without government spending on infrastructure etc. In the end, it won't work because of human nature (incentives gone wrong).

So the challenge is to design the system for a society such that incentives are set right, such that a) there is efficient production such that the society can survive in the short run b) it is sustainable such that it and the whole ecosystem can survive in the long run. The past 50-100 years made a lot if progress on a), and the next 50-100 years need to solve b).

Central planning is not a requirement in Marxism or even Marxism-Leninism. Lenin tried it during the civil war, and promptly reversed it in 1921 with the introduction of New Economic Policy, which he indicated he believed needed to be in place for decades (NEP involved re-introducing limited market economy). Stalin then reversed Lenins reforms and went much further shortly after Lenin died.

There are many left wing ideologies including anarchist and communist ideologies that explicitly promote the use of market mechanisms for resource allocation, and many more that take a "whatever works" approach.

The idea of a planned economy is attractive to some because it seems "tidy", while for others it's strongly unappealing because it involves a central authority, which is anathema to a lot of communist ideologies.

You can't trust human nature to toil away in factories and hard jobs and do so efficiently for 1/2 of waking life.

Make that fraction a lot smaller... say the only people that needed to work on whatever were the ones that actually wanted to... and suddenly communism works. Open source software works and so much of it is done because people just want to do it. Some day automation and efficiency will get to a point where nerds who have interests will end up doing all of the work because it's what they want to do. Imagine a 3d printer capable of making complex metal/plastic/ceramic/electronic/whatever objects. You'd get hordes of people designing and sharing things just because they wanted to. Design a 3d-printer that can print copies of itself (as well as most of the things a person could want) and suddenly a huge chunk of capitalism is just unnecessary.

50 years after the creation of Star Trek, we should be able to at least imagine the Star Trek economy being technically feasible in the not too distant future.

What the party calls themselves is irrelevant. "communism" as anyone would define it, is not what China's economy looks like today.

In both cases what seems to have emerged from the 20th century as the successful governing model is varying degrees of democratic socialism.

The gist of it is that capitalism and communism aren't exactly two instances of the same class, communism implies a form of government that capitalism doesn't. Likewise communism implies a precise extreme economy where capitalism is more vague.

Most of the world is mostly capitalist. The presence of extensive social welfare programs doesn't really take away from this in the way that adding a market economy and entrepreneurial opportunity takes away from communism.

Related: The Chinese regulations on export of neodymium magnets is similarly structured. Exporting the magnets or the raw metallic ingredients is subject to high tariffs, but export of finished products using them is not. This isn't just about energy exports though, it's straight up protectionism of their manufacturing businesses.

If the aluminum they're getting is worth more than they're paying for it, they want to buy and export as much as possible. They then store it until they can sell it at the appropriate price. Especially considering that you'd assume the loophole is going to close sooner or later.

And yes, in case the loophole closes. These guys may have been the largest operation that some guy flew a plane over but they probably weren't the only ones.

He said between India and China, they had both put huge strains on steel, aluminum and titanium and it was causing a shortage for bike manufacturers, so they were raising their prices since the prices for these metals had skyrocketed in recent months.

Good to know it was a little more to it, but interesting nonetheless.

And, of course, there are a number of ways to do speculation in a bear market but altogether, more money is going to be made in a bull market.

Even more, since the money coming out of quantitative easing isn't going into consumer goods (that much), it has to go into speculation and it thus seems likely the various kinds of market imbalances will or get worse.

and I thought: you must be new here

There are two big issues:

* It is very hard to gut-feel wealth distribution (eg, http://marketrealist.com/2013/10/shutdown-101-perceived-weal...). Identifying who the US rich requires more study of statistics than most people have time for - so this assertion is about a group that is difficult to identify. If most of the US rich were in fact living quietly on family wealth from a generation ago, how would this be identified? How do we verify that these 'rich people' are indeed meritorious? They might not be.

* All of history is a very long time. Although the US is technologically the most advanced nation we have ever seen, to claim that it rewards the meritous more than any nation in history is probably wrong, and suggests grandparent isn't making a point based on careful thought. We have had democracy for more than 2,000 years, the US has only been around for ~300.

[1] https://www.nytimes.com/books/first/s/stanley-millionaire.ht...

Most of the studies I've seen reach the opposite conclusion, that parental lifetime income highly predicts the income of their children. For example, a child of parents in the 90th percentile has an expected income of over $100K, while a child of parents in the 10th percentile has an expected income of less than $40K.

http://www.theatlantic.com/business/archive/2015/07/america-... (which comes from http://inequality.stanford.edu/sites/default/files/economic_...)

Income isn't wealth, but I'd be surprised if the correlation isn't strong. What percentage of individuals in the US of 90th percent household wealth came from families in the top half versus bottom half growing up? I don't know off hand, but if I had to bet blindly on outcomes I'd strongly favor betting on the individual who started out better off.

Typically between 2/3 and 3/4 of all members of the Forbes 400 for example, are self-made. Roughly half of all members in that group originate from the middle class or lower.

Interestingly, Americans have more belief that their society is a meritocracy than most developed nations and so are especially unaware of the problem. I submit it is this commonly held perception rather than data that is informing you comment.

Obviously in the past, when democracies were even fewer in number, the situation may have been different.

Here[1] you'll find a bounty of links supporting my point were one to take time time to read it rather than instantly and silently down voting what one doesnt want to know.

[1]https://en.wikipedia.org/wiki/Social_mobility#Patterns_of_mo...

The US also already has among the highest median income of any developed nation, and nearly the highest median disposable income. The US also has a higher median household net worth than either Germany or Sweden. That would inherently make it more difficult for the US to keep pushing the boulder up the hill.

Further, in the US more people are moving up out of the middle class and into the higher income brackets, than are moving down and out of it. That has been true for 40 years running now. Given the immense scale, income and wealth involved in that result, it's a staggering accomplishment.

Likewise in the last 40 years, the US per capita GDP has risen close to 70% while the median income has risen less then 20%. But the problem of declining social mobility and rising inequality is not remotely unique to the US.

At least as disturbing is the resultant problem of the steady rise and now mainstreaming of politically extreme views in several western countries in (including the current presidential race obviously). I suggest the economic underpinnings of this problem are issues that we really ought to look at objectively rather than waving the flag and insisting we live in the best of all possible wolds.

Without context, I would have thought that a Markov text generator was on the loose.

The Chinese have hacked and stolen many of the recipes the Steel Industry has spent decades working on. It was one of the reasons Washington had to act. Now they can supply markets where their product was not within spec.

Chinese industry gets subsidized by the Chinese Government. Depending on the exact industry they get a certain percentage back on exports. It can be up to 20 % on each export dollar. I once spoke to a shop that made specialized tools for CNC and Screw Machines. The guy told me that if he had a robot that could make the tool from start to finish without anyone needing to even come to work. Just place a load of steel down in the shop and leave. When you get back in a weeks time everything will be made and packed. He still couldn't compete with the Chinese. He says their steel is subsidized, their power is subsidized, they get subsidized to export and by the time you take all the subsidies into account they are 20-30 % cheaper than he can even buy the raw material for. Then to avoid any tariffs they ship product all over the world and move it through other countries. Hence Mexico has become one of these countries, especially when it comes to all metals.

They will stop at nothing to destroy Industry in other countries. They have the support of their Government at the highest levels and are encouraged. It is what makes this difficult to police.

[0] well, they split them into several images http://si.wsj.net/public/resources/images/BN-PS529_201609_G_... http://si.wsj.net/public/resources/images/BN-PS530_201609_G_... http://si.wsj.net/public/resources/images/BN-PS533_201609_G_... http://si.wsj.net/public/resources/images/BN-PT063_201609_G_...

>In Mexico, Mr. Shen was implementing an audacious plan, according to people familiar with the matter: A network of trading companies could route hundreds of thousands of tons of aluminum from China to Mexico, where a plant would melt it for shipment to the U.S., evading trade restrictions and claiming North American Free Trade Agreement benefits.

> Meanwhile, setbacks were piling up. Trucks and metal were stolen from the Mexico facility, slowing deliveries, former Aluminicaste employees say. The company failed to obtain Nafta benefits after U.S. authorities concluded that the metal came from China.

It says in the article: American companies are being put out of business by heavily-subsidized Chinese companies.

> Trying to enforce a tariff on element production from a subset of external countries seems sisyphean.

Apparently not:

> The company failed to obtain NAFTA benefits after U.S. authorities concluded that the metal came from China.

It helps to read the article you're commenting on ;)

It's in the US's interests that they don't allow another country to manipulate the market to destroy the US production capacity. Once that capacity is online the foreign country can then raise prices.

It's not easy or cheap to bring production capacity online.

Generally I'm pro-free trade, but the issue gets quite messy when you consider government subsidies. As a Canadian, this discussion comes up frequently along the lines of the subsidized agriculture sector.

I loved fantasy books as well.

He's, simply, laundering Chinese aluminum through Mexico.

So, that's what China was doing - they were giving this aluminum company tons of money, and it allowed them to produce and sell aluminum for far cheaper than should be possible. So America put a tariff on importing that aluminum from China.

Instead, they sent it to Mexico, and then pretended that the aluminum came there when shipping it into America. No more tariffs!

Because unless dumping actually succeeds at that goal, and I don't see any evidence that it does, it seems indistinguishable to American consumers from a huge technical advance in a foreign country lowering the cost of some import--yes, it may be detrimental to domestic producers, but it's a huge benefit to domestic consumers and a net benefit overall.

> the companies were selling products below the cost of manufacture and that the Chinese companies were benefiting from unfair subsidies from their government.

I assume Foxconn does not get subsidies to sell iPhones below cost :)

I'm in Argentina at the moment and I'm constantly hearing local businesses accusing china of dumping because they can't produce more cheaply, but than everywhere else in the world we buy Huawei, Xiaomi, etc I feel that accusations of dumping are more political interpretations than measurable facts.

And in the above scenario, Boeing is also someone that could buy those cheap Airbus planes. I know, it's a contrived scenario, but I think it illustrates the point.

In the case of aluminium being subsidized by the Chinese government, same thing. The entire world, including America, get's to benefit from cheap Aluminium. You could argue it's a relatively direct subsidy by the Chinese government to all Aluminium consumers. The Chinese government, and their subsidized aluminium producers will not be getting that money back. And really, all they're essentially buying is a temporary halt on competition. As soon as they monopolize the market, and attempt to abuse it, competitors will start appearing and they're back to square one. With a large capital deficit and negligible profits from the exercise.

Alternatively, you get protectionism via tariffs. One could argue that that is a form of punishment on all the consumers of the tariff-ed good, or consumers of goods that are made from the tariff-ed material. The consumers pay more, and the government get's extra tax revenue. Does it buffer, and protect local industries from turbulent and cheap foreign markets? Sure, but that's at the cost of the consumers again. Really, the only winner is the state's coffer.

</opinionated rant>

Let's say Chinese aluminum makers control the market and puts all other aluminum ventures out of business, and then raises the price until they don't need a subsidy and make a healthy profit.

Ok, so now someone else can jump in the aluminum game. Why would they do that if they knew that China could immediately put them out of business by turning the subsidy back on. Who would invest their money in that venture?

Why do we want to protect primary industries when historically there's been so much more money in secondary industries?

Nice bit of reporting by WSJ. I'm sure they will also get blocked in China, just like when NYT reported on the massive wealth of Party officials.

In a few years when people ask "when did the war start?" We might be pointing to this very incident, and many others like it.

IE, US brokerages have engaged in similar or even more baldly speculative dodges -

NYTimes: "Hundreds of millions of times a day, thirsty Americans open a can of soda, beer or juice. And every time they do it, they pay a fraction of a penny more because of a shrewd maneuver by Goldman Sachs and other financial players that ultimately costs consumers billions of dollars."

http://www.nytimes.com/2013/07/21/business/a-shuffle-of-alum...

And whether any of this actually illegal is to-be-determined but we're dealing with the people who make the laws, fighting with other people who also make their laws, right?